Curbing Stock Buybacks: A Crucial Step to Raising Worker Pay and Reducing Inequality

Executive Summary

Corporate America today increasingly treats workers as cost centers to squeeze, rather than as key stakeholders within the company and core contributors to profitability. In today’s highprofit, low-wage economy, corporate leaders are moving record profits up and out of companies instead of choosing to invest those profits in workers, business expansion, and long-term economic growth. One of the primary strategies used to extract profits is the stock buyback—a practice in which companies repurchase their own stocks from the open market to artificially drive up share prices. Stock buybacks greatly benefit corporate executives (who hold stock-based compensation) and market speculators, but they leave companies with fewer resources available to invest in workers and future growth.

Examining the latest available annual data, this report exposes the extent of recent buyback spending across the U.S. economy from 2015 to 2017—finding that companies spent almost 60 percent of their net profits on buybacks.

This report also illustrates the magnitude of buyback spending compared to worker compensation by focusing on three important industries—restaurant, retail, and food manufacturing—in which millions of our nation’s workers toil in low-wage, economically insecure jobs. We aim to show how much these workers—who are disproportionately women and people of color—could benefit if their employers directed corporate earnings to workers instead of share repurchases.

Key findings from the report include:

• The restaurant industry spent more on stock buybacks than it made in profits, funding buybacks through debt and cash reserves. Buybacks totaled 136.5 percent of net profits.
• Companies in the retail and food manufacturing industries spent 79.2 percent and 58.2 percent, respectively, of their net profits on share buybacks. • McDonald’s could pay all of its 1.9 million workers almost $4,000 more a year if the company redirected the money it spends on buybacks to workers’ paychecks instead.
• If Starbucks reallocated money from share repurchases to compensation, every worker could get a $7,000 raise.
• With the money currently spent on buybacks, Lowe’s, CVS, and Home Depot could give each of their workers raises of at least $18,000 a year.

This scale of per-worker spending on buybacks calls into question the idea that these corporations cannot afford to pay their workers more.

This scale of per-worker spending on buybacks calls into question the idea that these corporations cannot afford to pay their workers more. Policy reforms to curb the use of buybacks are a crucial step towards reducing the growing pay disparities between workers and executives and addressing increasing economic and racial inequality. While ending buybacks alone will not ensure that workers get their fair share, it would close one major channel through which billions of dollars are currently siphoned from America’s public companies and lay the foundation for more sustainable and shared prosperity for all.

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